Pricing instruments in environmental and climate policy when polluters are boundedly rational
Gsottbauer, Elisabeth (Free University of Bozen-Bolzano)
van den Bergh, Jeroen C. J. M (Universitat Autònoma de Barcelona. Institut de Ciència i Tecnologia Ambientals)

Date:	2025
Abstract:	The use of pricing instruments in environmental policy has been argued to have certain advantages, notably related to static and dynamic efficiency as well as effectiveness due to economy-wide scope. This paper adopts a broad perspective to provide a complete set of arguments in favour of price-based instruments in environmental policy, illustrated for climate policy. Pricing instruments are still not used to their full potential. The reason is that there is still considerable unfounded scepticism, including by researchers in the social environmental sciences, about their functioning and performance. Different disciplines express distinct and partly inconsistent ideas on the desirability of pricing instruments. An important recent criticism is that traditional economic arguments for pricing instruments are based on rational agents and are inconsistent with findings of behavioural economics. We examine this argument by assessing how instruments behave under various realistic behavioural assumptions in line with bounded rationality and other-regarding behaviour. We find that the case is strengthened for cap-and-trade versus environmental taxation. We also discuss additional instruments to effectively counter environmental and climate challenges under bounded rationality and social interactions.
Grants:	Agencia Estatal de Investigación CEX2024-001506-M European Commission 101056891 European Commission 101097924
Note:	Unidad de excelencia María de Maeztu CEX2019-000940-M
Rights:	Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, i la comunicació pública de l'obra, sempre que no sigui amb finalitats comercials, i sempre que es reconegui l'autoria de l'obra original. No es permet la creació d'obres derivades.
Language:	Anglès
Document:	Article ; recerca ; Versió publicada
Published in:	npj Climate Action, Vol. 4 (October 2025) , art. 96, ISSN 2731-9814

DOI: 10.1038/s44168-025-00284-9
PMID: 41116806

8 p, 394.9 KB

The record appears in these collections:
Research literature > UAB research groups literature > Research Centres and Groups (research output) > Experimental sciences > Institut de Ciència i Tecnologia Ambientals (ICTA) > Environmental and Climate Economics (ECE)
Articles > Research articles
Articles > Published articles